Asia’s biggest equity selloff in three weeks erased this year’s gains in the regional stock index and sent gauges in Tokyo and Hong Kong into bear markets. Futures pointed to a rebound in Japan as Nomura Holdings Inc. and Fidelity Investments said to buy.
The MSCI Asia Pacific Index (MXAP) lost 2.2 percent yesterday, extending its drop since its 2013 high on May 20 to more than 10 percent, as all 10 industry groups fell. The Hang Seng China Enterprises Index (HSCEI) slid 2.7 percent, and the Nikkei 225 tumbled 6.4 percent, pushing losses since last month’s high past the 20 percent threshold that some investors define as a bear market, according to data compiled by Bloomberg.
Concern central banks around the world will decide levels of stimulus are too high erased $2.7 trillion of stock value globally since May 21. Declines yesterday came after the World Bank cut its global growth forecast as emerging-market economies led by China slow, pushing the MSCI Asia Pacific gauge’s price to 14.4 times annual earnings, the lowest level in a year.
“There are reasons to be optimistic that further weakness will be temporary and that the peak is not behind us,” said Alex Treves, head of equities Japan for Fidelity Worldwide, which has about $248 billion under management, in e-mailed comments. “The key drivers of the rally remain intact, valuations are still reasonable and earnings are projected to recover to 2007 highs.”
Futures trading in Osaka on the Nikkei 225 (NKY) rose 3.8 percent at 3:30 p.m. in New York, pointing to a rebound when trading resumes in Tokyo, as the Standard & Poor’s 500 Index rallied to snap a three-day losing streak.
Yesterday’s decline reduced the seven-month advance in the Nikkei 225 to 44 percent, compared with 80 percent as recently as May 22. The MSCI Asia Pacific Index has climbed 7.6 percent over that period, beginning when elections were announced that brought Japanese Prime Minister Shinzo Abe to power.
Abe and the Bank of Japan have pledged to defeat 15 years of deflation with monetary stimulus and structural reforms that include freer trade and more labor-market flexibility. Nomura increased its year-end target for the Nikkei 225 today to 18,000, representing a 45 percent advance, based on the improving earnings outlook.
“Assuming that Abenomics has not been defeated, we see no reason to become bearish on Japanese stocks, and recommend a bullish stance,” analysts led by Hiromichi Tamura wrote in a note today. The analysts increased the forecast for the broader Topix index to 1,500, from 1,350 and boosted the outlook for earnings per share to 82.5 from 75.
Analysts say earnings for Topix companies will jump 53 percent this fiscal year to 78.85 yen a share. After retreating 18 percent since May 22, the Topix is trading at 13.2 times estimated earnings, compared with 16.6 in May and the three-year average of 14.6. The Standard & Poor’s 500, where earnings are expected to rise 11 percent this year, trades for 14.6 times forecast profit.
The Asia-Pacific measure has erased about $850 billion since May 20 and traded through yesterday at 12.5 times estimated earnings. The Stoxx Europe 600 Index trades for 12.8 times, according to data compiled by Bloomberg. The MSCI Asia Pacific excluding Japan Index dropped 1.3 percent, extending its loss from this year’s high on May 9 to 11 percent.
Hong Kong’s Hang Seng Index fell 2.2 percent, capping its biggest two-day retreat since July. Hopewell Hong Kong Properties Ltd., an owner of buildings in the Wan Chai business area, scrapped a $780 million initial public offering in the city after markets tumbled.
The Shanghai Composite Index, which tracks the mainland’s largest share market, decreased 2.8 percent after a three-day holiday. Government reports over the weekend showed mainland industrial production and exports trailed estimates.
Japan’s Topix fell 4.8 percent as the yen rose to the highest level versus the dollar since April 4, when the BOJ said it will double the monetary base in two years by buying government bonds. Every one of its 33 industries retreated, with 93 percent of the 1,709 companies declining.
Thailand’s SET index all but erased gains for the year. The Philippine Stock Exchange Index dropped the most since October 2008, while Indonesia’s Jakarta Composite Index slipped 1.9 percent. Foreign selling of the Southeast Asian nations’ shares has reached record levels as the threat of reduced monetary stimulus by the Fed spurs the biggest global equity rout since 2011.
South Korea’s Kospi index dropped 1.4 percent. Singapore’s Straits Times Index slipped 0.7 percent. Taiwan’s Taiex Index slid 2 percent.
Australia’s S&P/ASX 200 lost 0.6 percent even after a report showed an unexpected rise in payrolls. New Zealand’s NZX 50 Index declined 0.9 percent in Wellington.
Shares plummeted after the World Bank said in a report released June 12 in Washington that the global economy will expand 2.2 percent this year, less than its January forecast for 2.4 percent growth and slower than last year’s 2.3 percent rise.
Consumer discretionary and telecommunication services shares fell the most among the 10 groups on the MSCI Asia Pacific measure. Jollibee Foods Corp., the owner of fast food restaurants, plunged 8.8 percent to 130 Philippine pesos.
Fast Retailing Co., Asia’s biggest apparel chain, fell 8.6 percent to 28,550 yen in Tokyo, the lowest level since March 5. SoftBank Corp. shed 9.5 percent to 4,980 yen amid criticism of its revised bid for a stake in Sprint Nextel Corp. Fast Retailing and Softbank together comprise almost 14 percent of the Nikkei 225 (NKY).
Chinese banks, the most active companies by volume on the MSCI measure, dropped after the People’s Bank of China refrained from repurchase agreement operations this morning. China Construction Bank Corp. lost 8.6 percent to HK$5.53, the Bank of China Ltd. declined 2.2 percent to HK$3.19 and Industrial & Commercial Bank of China Ltd. lost 1.6 percent to HK$5.09.
The Standard & Poor’s 500 Index rose 1.3 percent as of 3:30 p.m. New York time, following a three-day decline, amid better-than-forecast data on retail sales and jobless claims. Fed Chairman Ben S. Bernanke last month said policy makers could reduce the pace of bond buying should there be sustained improvement in the employment market.
“The driving force obviously is the potential about the Fed’s tapering stimulus,” said Grace Tam, Hong Kong-based global market strategist at JPMorgan Asset Management Ltd., which oversees about $1.3 trillion globally. “For China, economic data isn’t good. For the moment, there’s not much catalyst for markets to rally, and the market could be very volatile for this quarter or until the end of the summer.”
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